US stock index futures are down this morning as a sell-off that started in Asia has spread to Europe. Bonds and MBS are up on the risk-off trade.

Chinese markets are the catalyst behind the sell-off, and it appears that non state-owned firms are having financing difficulties. The Chinese government addressed the issue on Friday, and while it soothed fears for a couple of days, investors are still worried. Financing difficulties invariably accompany bursting real estate bubbles and China’s bubble has been going on for years.

If China’s real estate bubble is bursting, the effect on US interest rates could go a couple of ways. The most likely event will be a drop in inflationary pressures as China’s currency drops and they attempt to export their way out of the problem. They could sell Treasuries to repatriate cash (in crises, you sell what you can, not necessarily what you want to) which would temporarily put upward pressure on US rates. The most likely scenario would be a risk-off one, where Chinese money withdraws out of risky assets in favor of Treasuries. It might cause the Fed to take a break.

Speaking of the Fed, the December Fed Funds futures are handicapping a 82% chance of a hike at the December meeting.

Fair Issac, the creator of the FICO score is going to re-work their model in 2019, which may bump up the scores of the more marginal borrower. Borrowers with some dings on their scores could get a boost if they maintain a few hundred dollars in their checking accounts and don’t overdraw them.

Jim Cramer warned that a 5% mortgage rate is a “line in the sand” for the economy. “We’re going to see more and more bad earnings because [a] 5 percent mortgage is the end, that is the line in the sand,” Cramer said Monday on “Squawk on the Street. ” “The mortgage rate is very high in this country.” Cramer has become critical of the Fed’s tightening regime, saying that the Fed is ignoring signals of a slowdown in the economy (particularly in housing). The thing to keep in mind is that rate changes act with a lag of about a year. This year’s moves have yet to be felt in the economy.

Note we will get the first estimate of third quarter GDP this Friday. The consensus estimate is for 3.3% growth, a slowdown from the second quarter pace of 4.2%.

Donald Trump proposed 10% middle class tax cut, which will be voted on after the election. This is an attempt to rally Republicans to the polls in order to maintain Congress. As of now, it looks like the GOP will probably increase their seats in the Senate, while Democrats are looking to possibly take over the House.